Having grown into the largest privately-held midstream company operating in the Delaware subbasin, Midland-based EagleClaw Midstream is ready for the next step.

That’s why the company and its financial sponsor EnCap Flatrock Midstream have agreed to a sale to funds managed by Blackstone Energy Partners and Blackstone Capital Partners for approximately $2 billion. The all-cash transaction is expected to close before the end of July and includes approximately $1.25 billion in stapled debt financing provided by Jefferies LLC.

While EnCap Flatrock received significant returns on its investment in EagleClaw, “we were at the saturation point,” explained Bob Milam, EagleClaw’s president and chief executive officer. Needing to recapitalize the company for future growth, “we tested the market.”

Blackstone was already aware of the company and its reputation through Blackstone’s ownership of oil and gas producers in the region, said David Foley, senior managing director of Blackstone and chief executive officer of Blackstone Energy Partners.

Milam and Foley participated in a conference call with the Reporter-Telegram.

“We (also) knew of the high quality of the acreage dedicated to EagleClaw,” Foley said. “The rates of return on drilling incremental wells to EagleClaw’s customers on that acreage is great. That’s why drilling rigs have come back to the Permian. There are a huge number of future drilling locations in EagleClaw’s addressable market that generate attractive returns even under a lower commodity price outlook than current strip, and if future productivity improvements are even a fraction of the last several years, more benches will become viable targets and the number of net “to-be-drilled” locations may continue to grow! Blackstone believes there will be a sizable inventory of drilling locations a decade from now, supporting the valuation of EagleClaw for many years to come.”

Beyond the quality of EagleClaw’s team and reputation and the quality of the acreage dedicated to the company, Foley said another attraction was the fact “there’s a lot of running room, a lot of undedicated acreage.” He praised EagleClaw’s management and its “entrepreneurial spirit” in reinvesting in EagleClaw alongside Blackstone. “If it ain’t broke, don’t fix it,” he said.

Milam agreed his team debated its next moves after striking the deal with Blackstone. “We said, ‘Where else would we rather invest?’ and it’s here. This is one of the hottest spots in the United States and we’d like another bite of the apple and that’s why we signed on with Blackstone and why we are reinvesting in the deal alongside them,” Milam said. Once the deal closes, EagleClaw will operate as a Blackstone portfolio company, retaining its name, management team and virtually all its employees.

Milam said EagleClaw’s focus will remain on servicing the Delaware, especially given the strong results that continue to come from new wells in the subbasin. “I coach my team to keep their eye on the ball,” Milam said. “There’s a lot to do here. There's a lot of undedicated acreage where we are, within our reach. There’s decades of drilling inventory under our footprint.”

Since it began operations in 2012, EagleClaw has grown its assets, primarily located in Reeves, Ward and Culberson counties, to include more than 375 miles of natural gas gathering pipelines and 320 million cubic feet per day (MMcf/d) of processing capacity. An additional 400 MMcf/d of processing capacity is under construction and expected to be online by the end of the year, according to Milam. He also reported the company has purchased 200 acres where EagleClawwill build a third natural gas processing complex.

Milam noted that he has said in the past that the main barrier to the growth of many oil and gas companies has been the ability to attract and hire top talent. This has not been an issue for EagleClaw which has current head count of 64 employees and is clearly focused on growth.